23 May IS THE DURATION OF A BOND A CHARACTERISTIC (IN THE SAME WAY THE COUPON RATE IS A CHARACTERISTIC) OF A BOND?
) Suppose that you have a three-year bond which has a 6 percent coupon rate, has a $100 face value, and pays annual coupons. Market yields for this type of bond are 4 percent. What is the modified duration of this bond?
2) Suppose that you have a four-year bond which has a 2 percent coupon rate, has a $100 face value, and pays annual coupons. Market yields for this type of bond are 4 percent. What is the modified duration of this bond?
3)Suppose that you have a debt instrument that pays you $0 in one year, $1,000 in two years, $2,000 in three years, and $4,000 in four years. Market yields for this type of debt instrument are 4 percent. What is the modified duration of this debt instrument?
4) What does duration measure?
5) The shorter a bond’s maturity the longer its duration. T/F
6) Duration increases at a decreasing rate as maturity lengthens. T/F
7) The lower a bond’s coupon, the shorter its duration. T/F
8) A high yield on a bond implies a high duration.
9) Is the duration of a bond a characteristic (in the same way the coupon rate is a characteristic) of a bond?
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